Market Brief
The World Bank cut its global growth forecast from 3.4% to 3% in 2015 despite weaker oil prices. The report leaned on growing divergence between the US and other major economies and predicted a longer period of dovish Fed before the first rate hike. The US Dollar showed mixed performance against its G10 and EM peers. The USD/RUB rallied to 66.46 as WTI crude dropped below $45 yesterday, while the oil importers as TRY and BRL were better bid with further gains anticipated.
In Japan, the Cabinet approved the record budget of 96.34 trillion yen for the fiscal year ‘15/16 with the tax revenue to reach a 24-year high. Combined to lower oil prices, there is good chance that the BoJ’s 2% target is not reached within the expected timeframe. The BoJ majority is willing to change the wording for 2% according to MNI. The Japan 10-year yields fall to the record low of 0.25%. JPY crosses were offered in Tokyo, Nikkei stocks lost 1.71%. USD/JPY legged down to 116.75, with stronger bearish momentum. The pair is now fully in the Ichimoku cloud cover (113.54/118.71). Resistance is seen at cloud top. Key support is seen at 115.50/57 (Fibonacci 61.8% on Oct-Dec rally / December dip). EUR/JPY hits the Fibonacci 23.6% on Oct-Dec rally (137.83). The ECJ decision today is important to predict whether there is room for extension of weakness or correction is underway. Resistance is placed at 140.10/30 (area including 200-dma &Fib 38.2%).
The EUR-complex focuses on the non-binding decision of European Court of Justice today on a list of questions raised by the German Constitutional Court. The ECJ provides opinion on the legality of the OMT program, the ancestor of the QE that the ECB is perhaps about to introduce. An adverse recommendation may complicate the next steps in favor of public debt purchases, as it may undesirably step into the borders of financing the governments which would be against the EU law. The final decision is due in six months. This being said, we see little probability in ECB condemnation to reverse speculations on the QE. The sentiment in EUR/USD remains comfortably negative.
The better-than-expected CPI read lead to sharp drop in USD/SEK yesterday, yet the pair didn’t have problem finding buyers below 8.00. Obviously the expansive ECB policy remains a heavy weight on Riksbank’s shoulders which has already brought its repo rate aggressively down to 0%. The slight improvement in inflation cool-off speculations for further rate cut in February meeting. Yet the slide in oil prices will, no matter what, continue weighing on inflation and bring the policymakers to cut their inflation forecasts for the coming months. We see room for further upside in USD/SEK. A key resistance stands at 8.1337 (2010 high). EUR/SEK hovers around the 21-dma (9.4915). Traders will be seeking fresh direction on the EUR leg, given the upcoming ECJ decision today and the potential implications on the ECB meeting (Jan 22nd).
AUD/USD sold-off on news that country’s biggest banks’ default risk increased to 9-month high. Further slide in copper prices also reinforced the AUD-shorts before jobs data due tomorrow. Upside remains fragile before Australian employment data (due Thu). Important resistance eyed at 0.8360/80 (50-dma / Oct’14-Jan’15 downtrend top).
Today the US Fed releases Beige Book. The economic calendar: French November Current Account Balance, French December CPI m/m & y/y, Italian December Final CPI y/Y, Euro-zone November Industrial Production m/m & y/y, US January 9th MBA Mortgage Applications, Canadian December Teranet/National Bank HPI m/m & y/y, US December Retail Sales and Import Price Index m/m & y/y and US November Business Inventories.
Currency Tech
EUR/USD
R 2: 1.2000
R 1: 1.1871
CURRENT: 1.1779
S 1: 1.1743
S 2: 1.1640
GBP/USD
R 2: 1.5485
R 1: 1.5320
CURRENT: 1.5205
S 1: 1.5000
S 2: 1.4814
USD/JPY
R 2: 120.83
R 1: 118.71
CURRENT: 116.93
S 1: 115.50
S 2: 113.54
USD/CHF
R 2: 1.0435
R 1: 1.0278
CURRENT: 1.0191
S 1: 1.0110
S 2: 1.0033